Demi-humans are the result of genetic modification by Solaris (such in the case of Rico who was modified in utero). This is probably to see if demi-humans could be better fleshy/genetic material for Deus. Continuing this theory, then demi-humans would probably be the test subjects of Project Malakh, Karellen's pursuit of engineering humans to be closer to their "true form" - parts of Deus.

In the time of Xenogears, many demi-humans face discrimination. They are likely viewed as freaky and weird-looking. People probably think they are monsters or cursed. Kislev (Sigmund) enacted anti-demi-human policies.

Elru was a country of demi-humans and was likely an experiment by Solaris to see how demi-humans would act or reproduce together, but it was eventually destroyed.